AG Mortgage Investment Trust, Inc. entered into a dispute with Terra Property Trust, Inc. for Western Asset Mortgage Capital Corp., the company announced on Thursday.
AG Mortgage, a pure-play residential mortgage REIT controlled by Angelo Gordon & Co. and owner of mortgage lender ARC Home, made a stock-and-cash offer for its peer Western Asset, managed by Franklin Resources, Inc.
The publicly traded REIT is offering $9.88 per share, representing $60.5 million in aggregate and an 18.2% premium to Western Asset’s closing stock price as of July 12. The deal values Western Asset at $300 million, including debt.
The bid includes an implied value of $8.90 per common share ($54.5 million in total) and $0.98 per share in cash to shareholders ($6 million in total). In addition, AG Mortgage is waiving $2.4 million in management fees in the first year after closing.
AG Mortgage would issue newly listed common shares to Western Asset shareholders on a book-for-book basis, consisting of 31% ownership of the combined company. The REIT would also expand its board to include up to two members from Western Asset’s independent directors. AG Mortgage has Piper Sandler as its financial advisor.
“Our complementary core competences in residential mortgage credit would establish an even more efficient and competitive company,” T.J. Durkin, president and CEO at AG Mortgage, said in a letter to Western’s board. “Our proposal provides closing certainty and does not accelerate WMC’s convertible notes while also benefiting WMC stockholders.”
The AG proposal comes a few weeks after Terra Property, managed by Mavik Capital Management, and Western Asset announced that they entered into a definitive agreement to combine in a book-for-book deal.
On June 28, the companies announced the transaction would create a REIT with $1.2 billion in assets and $436 million of adjusted book value upon completion of the merger. The deal represents a private-to-public transaction for Terra Property.
The transaction valued Western Asset at $17.30 per share, but the REIT’s stocks have been trading down since the announcement. Investors have been skeptical about Terra Property’s shares value as it’s a non-traded REIT.
When announcing the deal with Terra Property, Bonnie Wongtrakool, CEO of Western Asset, said the transaction provides a greater market capitalization for the REIT based on recent trading levels.
“With reduced leverage levels and increased liquidity as a combined company, we believe WMC shareholders will greatly benefit from the partnership of a well-capitalized institutional partner in TPT, which brings a proven track record and has developed broad and deep expertise investing across cycles, property types, and markets,” Wongtrakool said.
Western Asset, a non-QM player, announced in 2022 it was exploring a potential company sale or merger in the wake of posting a $22.4 million net loss for the second quarter that ended June 30, 2022.
A spokesperson for Western Asset did not immediately reply to a request for comment.